How to price your services as a freelancer

You know what bothers me? Reddit.

Okay, that’s a lie. I love Reddit. I follow a few startup-focused subreddits and I love hearing what everyone else is doing in their businesses. But the part of Reddit that miffs me is, specifically, this subreddit:

You want to know why? Because it’s on this forum that I learned that some of you writers out there are getting $5-25 dollars for an article.

$5 for a few hours’ work. That’s insane.

Here’s something I’d like to shout from the rooftops (I can’t actually get on the roof of my apartment, so this blog will have to do):

YOU CAN, AND SHOULD, BE PAID WELL FOR YOUR WRITING.

(or your web development, design work, or other creative service)

I’ve found that poor pricing boils down to two key problems. Either:

You don’t know how to price your services to reflect their value, or

You’re taking the wrong projects.

…Or likely both. This post will address the first problem.

Pricing your services is both a science and an art. Below is the process I use for pricing freelancing work.

Step 1: Figure out your freelance hourly rate

1. Set your goal

How much would you like to make by the end of the year, after taxes? How much do you need to cover your annual living costs, while putting away some savings? Name this number, exactly.

Goal = $40,000

2. Add your business expenses to your goal

As a freelancer, you are subject to some extra taxes on top of your normal income tax. It’s safe to estimate that in total, some 30% of your income will go to taxes. Fingers crossed that it’s less than that, but it’s better to overestimate.

If you’re just getting started in your business, you’ll have some startup costs. A domain, website hosting, and WordPress theme might cost $250 or so if you have a basic idea of what you’re doing. Of course, if you don’t have a computer at all, you’ll probably need to tack on an addition $2,000 or so.

30% tax on $40,000 = $12,000

Computer and/or software = $2,000

Website = $250

So in reality, you need to make $54,250 to end up with $40,000 post-tax income.

Which means that you need to bring in $4520 each month.

Does that sound impossible? It’s really not. Let’s keep going.

3. Determine your available hours

You’ll want to calculate your time based on the standard 40 hours a week, even if you’re still working full-time and just trying to start something on the side.

Now, if you’re freelancing 40 hours a week, only a portion of that time will be going to actual client work. The rest will be going to promoting yourself, communicating with current and potential clients, and taking your dog on walks. And doing yoga. Because let’s face it – there’s some perks to the job.

So let’s say that, of your 40 available hours, you plan on devoting 75% of your time to work-work and the other 25% to self-promotion/dog-walking. That means that only 30 hours a week, or 120 hours a month, will actually bring you money.

4. Calculate your freelance hourly rate

Desired monthly income = $4520

Hours available = 120

Does that sound ridiculously high to you? It shouldn’t. In fact, I’ve found that most freelancers start out around $50 an hour. The reality is that you’re probably not going to have a perfect 75% of your time filled with client work, and some projects are going to take up way too much of your time. That buffer will save your butt.

As a freelancer, you have the ability and necessity to charge more per hour than the average full-time employee specifically because you are not a full-time employee. Full-timers get benefits and steady work. You don’t. So you are allowed and expected to charge more.

Step Two: Price by project, not by hour

Now that you have an understanding of how much you actually need to be making, it’s time to assess the way you’re charging.

There’s this huge debate in the freelance world of whether you should charge by the hour or charge by the project. Everyone does what works for them, and that’s dandy. But the truth is that unless you’re working as a contractor employee (doing work as an employee long-term), hourly charges just don’t make sense. Instead, a flat project fee is the way to go.

Charging by project is what grows your business

Project-based pricing will transform the way you do business, because hourly pricing has three inherent flaws:

If you’re charging every client by how much time you devote to them, you’re putting a cap on your earning potential. There are literally only 24 hours in a day.

If you increase your hourly prices too much, your clients will eventually be scared off. They’ll wonder what on earth you could possibly be doing in an hour that’s worth that much money.

Hourly pricing means the more efficient you get in your work, the less you’re going to make.

Project pricing is much easier to sell. You’re charging for the value you generate, not the time you put into it. Sure, you might be just writing a blog post. But if that blog post is going to attract $2000 worth of paying customers over time, charging $200 isn’t unreasonable.

How to price your services by project

When I’m deciding how much to charge for a project, I start with my hourly fee. How much time will it take to do all of the work laid out in the Scope of Work? It’s an art, really—finding the balance somewhere in-between the best-case scenario and the worst-case scenario. I add a bit of extra time for client communications, then multiply the total time by my hourly charge.

Then I let it sit.

A few hours later, I’ll come back. Does that price still sound reasonable? Do I have a good gut feeling about it? I may consider moving the price up or down depending on whether or not the client is a friend or mine, the client needs the project rushed, etc.

Confronting the nay-sayers

Project pricing takes a mentality shift with your clients, and is much easier to do with new clients than with existing ones. There are two perspectives that you must face head-on to make it work.

Perspective #1: “You’re basically an employee.”

No, you’re an independent specialist, hired for one very specific purpose. To solidify the right perspective, you’ll need to outline in rigorous detail exactly what you’ll be doing for your client before you begin. This Scope of Work should be an official document that states the timeline and everything you will deliver.

Perspective #2: “You’re not putting enough work into this to justify the price.”

Someone might understand that you’re a skilled professional and that they personally could never, say, create a decent web graphic. But when you charge a few hundred and deliver it in an hour or two, something deep in their gut is going to tell them that it’s not worth the cost. They’ll have a nagging doubt that the short turn-around time means you didn’t do your best work, even if the final result is perfect.

To combat this, demonstrate your value whenever you can. Get into the habit of explaining the steps that went into the project, or your rationale for doing it the way that you did. It takes just a few minutes to add onto an email. That next step will show them you care about their project and are giving it due diligence.

Step Three: Increase your freelancing prices

As you gain experience, you can increase your price with each new client you take on. This will be especially true if you stay in contact with past clients and find out how well your work is performing. If you can demonstrate to new clients that your work reliably leads to sales, paying a portion of the expected earnings will be much easier for them.

So you writers on Reddit, get out of the content mills! Start pitching yourselves to businesses that will pay you what you’re worth. It takes guts, and it takes time. But if you deliver results, you’ll get some yourself.

Need a little help?

I’ve put together a free worksheet so you can calculate the price of your services in an easy step-by-step, fill-in-the-blank process. Print off a copy for your business binder so you will always remember what your time is worth.